Does the European Financial Stability Facility bail out sovereigns or banks?: An event study

Balint L Horvath; Harry Huizinga

doi:10.1111/jmcb.12173

Does the European Financial Stability Facility bail out sovereigns or banks? An event study

Balint L Horvath, Harry Huizinga

Research output: Contribution to journal › Article (Academic Journal) › peer-review

16 Citations (Scopus)

516 Downloads (Pure)

Abstract

On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks' sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.

Original language	English
Pages (from-to)	177-206
Number of pages	30
Journal	Journal of Money, Credit and Banking
Volume	47
Issue number	1
Early online date	23 Jan 2015
DOIs	https://doi.org/10.1111/jmcb.12173
Publication status	Published - 1 Feb 2015

Research Groups and Themes

AF Banking

Keywords

G21
G28
H63
bailout
banking
CDS spreads
sovereign debt

Access to Document

10.1111/jmcb.12173

Full-text PDF (accepted author manuscript)
This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Wiley at http://onlinelibrary.wiley.com/doi/10.1111/jmcb.12173/abstract. Please refer to any applicable terms of use of the publisher.
Accepted author manuscript, 881 KBLicence: CC BY-NC

Handle.net

Persistent link

Cite this

@article{06995e9b84034c55a0dfb116f1adf0a0,

title = "Does the European Financial Stability Facility bail out sovereigns or banks?: An event study",

abstract = "On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks' sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.",

keywords = "G21, G28, H63, bailout, banking, CDS spreads, sovereign debt",

author = "Horvath, \{Balint L\} and Harry Huizinga",

year = "2015",

month = feb,

day = "1",

doi = "10.1111/jmcb.12173",

language = "English",

volume = "47",

pages = "177--206",

journal = "Journal of Money, Credit and Banking",

issn = "0022-2879",

publisher = "Wiley-Blackwell",

number = "1",

}

TY - JOUR

T1 - Does the European Financial Stability Facility bail out sovereigns or banks?

T2 - An event study

AU - Horvath, Balint L

AU - Huizinga, Harry

PY - 2015/2/1

Y1 - 2015/2/1

N2 - On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks' sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.

AB - On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks' sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.

KW - G21

KW - G28

KW - H63

KW - bailout

KW - banking

KW - CDS spreads

KW - sovereign debt

U2 - 10.1111/jmcb.12173

DO - 10.1111/jmcb.12173

M3 - Article (Academic Journal)

SN - 0022-2879

VL - 47

SP - 177

EP - 206

JO - Journal of Money, Credit and Banking

JF - Journal of Money, Credit and Banking

IS - 1

ER -